World Risks Repeat of '30s Double Dip

Spending cuts could send economy plummeting again
By Kevin Spak,  Newser Staff
Posted Jun 30, 2010 12:53 PM CDT
Unemployed people, numbering about 5,000, wait outside the State Labor Bureau during the Great Depression in this file photo.   (AP Photo/File)

(Newser) – The world's top economies are all talking about tightening their belts, and in so doing risk repeating the mistakes of the 1930s, writes David Leonhardt of the New York Times. When President Roosevelt tried balancing the budget in 1936, it plunged the recovering country back into depression. But austerity enthusiasts argue the more stable modern financial system, coupled with growth from the developing world, will allow the economy to avoid a repeat performance.

They may well be right, Leonhardt allows. But “the parallels to 1937 are not reassuring.” Then, as now, the economy had grown rapidly following government spending, and back then, at least the US cuts were softened a little by pre-World War II increases in Europe. “This time, almost the entire world will be withdrawing its stimulus at once,” Leonhardt writes. “We are left to hope that we have absorbed just enough of the 1930s lesson.”

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